Bonneville Power Administration Integrated Program Review Depreciation, Amortization, Net Interest, and Debt Management June 26, 2008 - BPA ...

 
Bonneville Power Administration

                            Integrated Program Review
             Depreciation, Amortization, Net Interest, and
                          Debt Management
                                  June 26, 2008

BPA Integrated Program Review                                1
BPA’s Financial Disclosure Information

   1.     For forecasts, “all FY 2009-11 information was provided in May and June 2008 and cannot be
          found in BPA-approved Agency Financial Information but is provided for discussion or
          exploratory purposes only as projections of program activity levels, etc.”

   2.     For actuals, “all FY 2006-07 information was provided in May 2008 and is consistent with
          audited actuals that contain BPA-approved Agency Financial Information.”

   3.     This information is a derived estimate for presentation purposes and cannot be found in BPA-
          approved Agency Financial Information but is provided for discussion or exploratory purposes
          only as projections of program activity levels, etc.”

BPA Integrated Program Review                                                                          2
Agenda

  1.   Purpose and Objective of Workshop
  2.   Financial Disclosure Statements
  3.   Putting Today’s Discussion in Perspective
  4.   Power Capital-Related Expenses
  5.   Transmission Capital-Related Expenses
  6.   Debt Management Actions
  7.   Access to Capital Update
  8.   Lease Financing Overview
  9.   IPR Workshop Schedule
  10. How To Provide Comments

BPA Integrated Program Review                      3
Purpose & Objective

    •    Provide an overview of the current Power and Transmission forecasts of capital-related
         expenses:
           • Depreciation and Amortization
           • Federal Net Interest
           • Non-Federal Debt Service
           • Minimum Required Net Revenues (MRNR)
           • Transmission Capital Leases

    •    Provide an overview of BPA’s debt management activities and issues:
           • Debt Optimization/Debt Service Reassignment
           • Update on Access to Capital
           • Lease Financing

BPA Integrated Program Review                                                                     4
Putting Today’s Discussion in Perspective

   •   The costs associated with the traditional capital-related expenses -- Depreciation & Amortization,
       Federal Net Interest expense, and Non-Federal Debt Service -- are significant drivers of rate
       levels. These costs represent about one-third of Power’s total expenses and about half of
       Transmission’s total expenses.
        •   These costs are driven by broad-based agency decisions and policies related to capital
            investment levels.
        •   Corporate Finance responds to these decisions and the associated timing parameters by
            developing the optimal, most efficient debt management actions leading to the lowest costs
            overall.
        •   The actual costs in the package are the aggregate result of past decisions.
   •   The forecasted costs in this package reflect the result of past decisions, forecasts of future
       spending levels, existing policies, and assumptions about other decisions.
   •   Capital spending levels are not within the scope of today’s presentation. The appropriate forums
       are the related program sessions of the IPR.
   •   Debt management actions are within the scope of today’s session.

BPA Integrated Program Review                                                                               5
What Are These Programs?
   •   These “programs” are really categories of expenses derived from actions taken in several other programs. These
       categories represent the financial outcomes of decisions in other areas.
   •   Depreciation & Amortization: This category consists of annual expenses associated with Power and
       Transmission plant-in-service and intangible assets, respectively.
   •   Net Interest Expense:
         • For Power, this category consists of the interest on outstanding Treasury bonds and Congressional
            appropriations, an interest credit, amortization of capitalized call premiums, the capitalization adjustment,
            and the allowance for funds used during construction.
         • For Transmission, this category includes the same categories as Power plus the interest associated with
            Debt Service Reassignment (DSR) within the Debt Optimization (DO) Program.
   •   Non-Federal Debt Service:
         • For Power, this category consists of third-party debt service or payment of costs associated with capitalized
            contracts and other long-term, fixed contractual obligations. Debt service costs on the Energy Northwest
            (EN) projects make up the majority of these costs.
         • For Transmission, this category consists of AFUDC and interest accruing on customer balances associated
            with network upgrades under Large Generator Interconnection Agreements (LGIA).
   •   Minimum Required Net Revenues (MRNR): As necessary, revenue requirements include MRNR to ensure
       coverage of annual cash requirements. It is calculated as the amount by which BPA’s payments to Treasury for
       amortization and irrigation assistance exceed the total of non-cash expenses and revenues. MRNR is a
       ratemaking construct only. It does not appear in audited financial statements as an expense.
   •   Capital Leases: This category affects Transmission only. Capital leases are part of Transmission Operations
       and Maintenance. As presented here, this category is the lease payments for various capital projects such as
       Schultz-Wautoma and projects financed through the Master Lease program.

BPA Integrated Program Review                                                                                          6
The Role of the Repayment Study

   •   The primary purpose of the repayment study is to determine a schedule of Federal principal
       payments that satisfies the statutory requirement to set rates to assure timely repayment of the
       Federal investment.

   •   Repayment studies are conducted for each year in a rate test period. Each annual study includes
       outstanding bonds and appropriations as of the most recent year of actual data and projected
       repayment obligations through the year of the study. Funding for replacements projected during
       the repayment period also is included in the repayment study, consistent with the requirements of
       RA 6120.2.

   •   Annual debt service streams for non-Federal payment obligations are included as fixed
       requirements that the study must take into account in establishing the overall levelized debt
       service. This reflects the priority of revenue application in both policy and statute in which these
       obligations have a higher priority of repayment. The study schedules the repayment of Federal
       debt around these obligations.

   •   That schedule, with the resulting Federal interest payments, the non-Federal debt service
       requirements and, in generation, Federal irrigation assistance, is the lowest, levelized combined
       debt service for the study year and over the ensuing repayment period.

BPA Integrated Program Review                                                                                 7
Power Capital-Related Expenses

BPA Integrated Program Review                          8
Power Repayment Study Assumptions

     • The repayment study used in this analysis included updates of historical debt management
       actions as well as assumptions about future actions. The more significant of these updates and
       assumptions are listed below.
          •   Historical Federal actions through FY 2007
          •   2007 Supplemental Rate Case Federal amortization for FY 2009
          •   Debt Optimization of $37 million for FY 2008 (no projection of future DO)
          •   Spring 2008 refinancings of EN debt
          •   15 percent lapse factor applied to projected Federal investments

     • The repayment study assumption about CRFM investment has been updated since the IPR
       kickoff workshop to take into account the updated forecast.

     • There are additional updates that are likely to happen prior to the Initial Proposal.
         • The database of historical Federal investments will be updated for FY 2008 transactions.
         • The non-Federal database will be updated for additional refinancing actions taken in FY
             2008.
         • The interest rate forecast will be updated in the fall.

BPA Integrated Program Review                                                                           9
Power Function Capital Expenditures
                              Actuals for FY 2006-2007, Forecasted FY 2009-2013
      UPDATED                                                     Rate Case
  $ in Thousands                              Actuals     SOY      Average     IPR     IPR     IPR     IPR     IPR
          Description                    FY 2006 FY 2007 FY 2008 FY 2008-09* FY 2009 FY 2010 FY 2011 FY 2012 FY 2013
  Corps of
  Engineers/Bureau of
  Reclamation                             120,561       108,351       162,488          150,301       154,950      183,200       199,200    208,200   220,200
  Fish & Wildlife                           35,000        35,000        36,000          36,000        50,000        70,000        60,000    50,000    50,000
  Conservation                              20,000          7,000       42,000          32,000        42,000        56,000        56,000    56,000    56,000
          1/
  CGS                                       74,501        82,926        44,464          26,900        96,700        73,600        99,900    55,200    47,700
  CRFM                                    366,165         49,410        60,000          68,300 110,000              88,000        96,000   50,000         0
                         2/
  15% lapse factor                                                                                  (29,813) (36,150) (38,550) (39,900) (41,700)
  Total Capital                           616,227       282,687       344,952          313,501      423,837 434,650 472,550 379,500 332,200
  Total Increase/Decrease *                           (333,540)        62,265                        78,885        10,813        37,900    (93,050) (47,300)
 1/
      CGS values are in Energy Northwest fiscal year.
 2/
      Lapse Factor does not include Fish & Wildlife, CGS, or CRFM
  *Change is calculated from the prior year. The “Rate Case Average” column is not used in calculations of increases and decreases.

  UPDATE FROM THE KICKOFF WORKSHOP
  •   The forecast for the Columbia River Fish Mitigation (CRFM) program has been revised to reflect the latest
      assumptions about when plant will go into service.

                                                                                          See Financial Disclosure Statements on Page 2

BPA Integrated Program Review                                                                                                                            10
Power Net Interest, Amortization, Depreciation &
                                           Non-Federal Debt Service
  UPDATED
                                                                                                    Rate Case            Rate
     $ in Thousands                                          Actuals                   SOY           Average             Case             IPR          IPR       IPR
                                                     FY 2006         FY 2007         FY 2008        FY 2008-09         FY 2009         FY 2009        FY 2010   FY 2011
     Program Level Spending                          848,119         788,123          897,281         916,200          937,370         913,029        937,276   987,700
     Increase/Decrease *                                              (59,995)        109,157                           40,089          (24,341)       24,248    50,424

  * For FY 2006-2008, Rate Case FY 2009, 2010 and 2011, change is from the prior year. For FY 2009 Forecast, change is calculated from “Rate Case”.

  Program Background:
  • Program components
      • Net interest – Comprised of interest on bonds and appropriations netted against interest credit from the
          Bonneville Fund.
      • Depreciation – The depreciation of revenue-producing assets and on-going infrastructure investments through
          BPA, direct funding for Corps of Engineers (COE) and Bureau of Reclamation (USBR) hydro projects, and
          appropriated investment for fish mitigation program at hydro projects managed by the Corps of Engineers.
      • Amortization – The depreciation of non-revenue producing assets such as conservation and direct fish and
          wildlife capital investments (non-appropriated).
      • Non-Federal Debt Service – Comprised of debt service or payments associated with capitalized contracts and
          other long-term, fixed contractual obligations. The majority of this category consists of debt service on Energy
          Northwest projects (e.g. CGS, WNP-1, and WNP-3).
  Drivers of Change:
  • Increased capital investment, particularly in conservation and BPA’s Fish and Wildlife Program, results in higher
     costs in FYs 2010-2011.
  • Change in projected interest income due to change in cash balances.
  • Debt management actions.
                                                                                                 See Financial Disclosure Statements on Page 2

BPA Integrated Program Review                                                                                                                                          11
Where do these categories appear in the
                                    Power Revenue Requirement?
                                                Bold Typeface = Affected Category
                 GENERATION REVENUE REQUIREMENT                                      GENERATION REVENUE REQUIREMENT
                       INCOME STATEMENT                                                 STATEMENT OF CASH FLOWS

      1 OPERATING EXPENSES                                           1 CASH FROM OPERATING ACTIVITIES
      2    POWER SYSTEM GENERATION RESOURCES                         2    MINIMUM REQUIRED NET REVENUES 1/
      3        OPERATING GENERATION RESOURCES                        3    NON-CASH ITEMS:
      4        OPERATING GENERATION SETTLEMENT PAYMENTS              4        DEPRECIATION AND AMORTIZATION
      5        NON-OPERATING GENERATION                              5        AMORTIZATION OF CAPITALIZED BOND PREMIUMS
      6        CONTRACTED POWER PURCHASES                            6        CAPITALIZATION ADJUSTMENT
      7        RESIDENTIAL EXCHANGE PROGRAM                          7        ACCRUAL REVENUES
      8        RENEWABLE AND CONSERVATION GENERATION                 8 CASH PROVIDED BY OPERATING ACTIVITIES
      9    TRANSMISSION ACQUISITION AND ANCILLARY SERVICES
     10    POWER NON-GENERATION OPERATIONS                           9 CASH FROM INVESTMENT ACTIVITIES:
     11    F&W/ENVIRONMENTAL REQUIREMENTS                           10    INVESTMENT IN:
     12    GENERAL AND ADMINISTRATIVE                               11        UTILITY PLANT (INCLUDING AFUDC)
     13    OTHER INCOME, EXPENSES AND ADJUSTMENTS                   12        CONSERVATION
     14    NON-FEDERAL DEBT SERVICE                                 13        FISH & WILDLIFE
     15    DEPRECIATION AND AMORTIZATION                            14 CASH USED FOR INVESTMENT ACTIVITIESS
     16 TOTAL OPERATING EXPENSES
                                                                    15 CASH FROM BORROWING AND APPROPRIATIONS:
     17 INTEREST EXPENSE:                                           16    INCREASE IN BONDS ISSUED TO U.S. TREASURY
     18     INTEREST ON FEDERAL INVESTMENT-                         17    REPAYMENT OF BONDS ISSUED TO U.S. TREASURY
     19         APPROPRIATED FUNDS                                  18    INCREASE IN FEDERAL CONSTRUCTION APPROPRIATIONS
     20         BONDS ISSUED TO U.S. TREASURY                       19    REPAYMENT OF FEDERAL CONSTRUCTION APPROPRIATIONS
     21     INTEREST CREDIT ON CASH RESERVES                        20    PAYMENT OF IRRIGATION ASSISTANCE
     22     AMORTIZATION OF CAPITALIZED BOND PREMIUMS               21 CASH PROVIDED BY BORROWING AND APPROPRIATIONS
     23     CAPITALIZATION ADJUSTMENT
     24     ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION            22 ANNUAL INCREASE (DECREASE) IN CASH
     25 NET INTEREST EXPENSE
                                                                    23 PLANNED NET REVENUES FOR RISK
     26 TOTAL EXPENSES
                                                                    24 TOTAL ANNUAL INCREASE (DECREASE) IN CASH
     27 MINIMUM REQUIRED NET REVENUES 1/
     28 PLANNED NET REVENUES FOR RISK
     29 TOTAL PLANNED NET REVENUES (27+28)                         1/ Line 22 must be greater than or equal to zero, otherwise net revenues
                                                                      will be added so that there are no negative cash flows for the year.
     30 TOTAL REVENUE REQUIREMENT

     1/ SEE NOTE ON CASH FLOW STATEMENT

BPA Integrated Program Review                                                                                                                 12
Power Depreciation & Amortization Expense

  UPDATED                                                                                                     Rate
                                                                                                              Case            Rate
      $ in Thousands                                                     Actuals                 SOY         Average          Case           IPR      IPR     IPR
                                                                  FY 2006        FY 2007       FY 2008 FY 2007-09           FY 2009       FY 2009 FY 2010    FY 2011
      Program Level Spending                                       181,878        176,204       187,891  197,912             205,857      193,165 204,001    216,916
      Increase/Decrease *                                                          (5,674)       11,687                       17,966       (12,692) 10,836    12,915

  * For FY 2006-2008, Rate Case FY 2009, 2010 and 2011, change is from the prior year. For FY 2009 Forecast, change is calculated from “Rate Case”.

  •     Depreciation and amortization are the annual expenses associated with FCRPS plant-in-service and intangible
        assets, respectively. These non-cash expenses are the systematic distribution of the original cost of the assets
        over their estimated useful lives.
  •     The primary driver for these expenses is the level of capital investment, particularly in prior rate periods.
  •    This forecast is an update from the IPR Kickoff workshop to reflect the revised CRFM forecast.
      Program Components of $210 million per year average annual expense for FY 2010-2011:
      53% COE/USBR – investment in power portion of hydro projects, including Columbia River Fish Mitigation
          (CRFM) and Lower Snake hatcheries
       5%       Power - investment in capital equipment (IT and furniture), including share of Corporate
      12% Fish and Wildlife (F&W) - investment in BPA’s Fish and Wildlife direct program
      12%      Legacy Conservation – investments in BPA’s original conservation capital program, FYs 1982-1999
       6% Conservation Augmentation (ConAug) – investments in BPA ‘s conservation capital program during FYs
          2002-2006
      11% Conservation Acquisition (ConAcq) – investments in BPA’s conservation capital program during FYs
          2007-2011                                           See Financial Disclosure Statements on Page 2

BPA Integrated Program Review                                                                                                                                          13
Power Depreciation & Amortization for
                                     FY 2010–2011 Rate Period
                                    ($Thousands)         2010            2011
                               Depreciation
                                            BPA General  10,671          10,341
                                  Bureau of Reclamation  23,687          25,592
                                     Corps of Engineers  79,054          80,228
                                  USFW -- Lower Snake     3,166           3,166
                                              Sub-Total 116,578         119,327

                               Amortization
                                          Fish & Wildlife    24,440      27,021
                                   Legacy Conservation       25,289      23,439
                                                ConAug       13,335      13,335
                                                ConAcq       19,403      28,838
                                SFAS 71 (CRFM Studies)        4,955       4,955
                                               Sub-Total     87,423      97,589

                               Total                        204,001     216,916

   FY 2010 – 2011 Risks & Opportunities:
   • Since depreciation and amortization are direct results of the level of capital investment, they will increase or
     decrease based on capital investment decisions and actual plant-in-service.
   • This forecast applies the 15 percent lapse factor evenly across all of the affected categories. The forecast will
     be different if the lapse factor were applied differently.

                                                                   See Financial Disclosure Statements on Page 2

BPA Integrated Program Review                                                                                            14
Power Net Interest Expense

  UPDATED
                                                                                                         Rate Case
 $ in Thousands                                                  Actuals                    SOY           Average Rate Case                  IPR        IPR        IPR
                                                         FY 2006          FY 2007         FY 2008        FY 2007-09        FY 2009         FY 2009     FY 2010    FY 2011
 Program Level Spending                                    157,609         145,516         169,748          169,958         177,499         161,996     177,092   193,721
 Increase/Decrease *                                                        (12,093)        24,232                            7,750         (15,503)     15,096    16,629
  * For FY 2006-2008, Rate Case FY 2009, 2010 and 2011, change is from the prior year. For FY 2009 Forecast, change is calculated from “Rate Case”.

      • This category was updated to reflect the change in CRFM investments.
      • The major components of Net Interest Expense are:
               1. Interest on outstanding bonds and appropriations. For Power, bonds issued to the U.S. Treasury by
                  BPA are for capital equipment, F&W, conservation and the direct-funding of COE and USBR
                  investments. Congressional appropriations are for the power portion of COE and USBR hydro projects,
                  including F&W.
               2. Interest credit. A significant variable is an interest credit associated with interest income from cash in
                  the BPA Fund attributable to Power cash flows.
               3. Amortization of certain cash events. These include the non-cash expenses for amortization of
                  capitalized bond premiums and the capitalization adjustment resulting from the BPA Appropriations
                  Refinancing Act.
               4. Allowance For Funds Used During Construction (AFUDC). This is included to offset bond interest
                  used to fund assets under construction.

                                                                                                 See Financial Disclosure Statements on Page 2

BPA Integrated Program Review                                                                                                                                         15
Power Net Interest for FY 2010-2011 Rate Period

                                         ($Thousands)                 2010             2011
                            Interest on Federal Investment -
                                 On Appropriated Funds                 223,743         228,979
                                 On Long-Term Debt                      70,986          81,558
                                 Interest Credit                       (61,120)        (60,295)
                                 Amort of Cap Bond Prem                    185             185
                            Capitalization Adjustment                  (45,937)        (45,937)
                            AFUDC                                      (10,765)        (10,770)
                            Net Interest Expense                       177,092         193,721

    FY 2010 – 2011 Risks & Opportunities:
    • Non-Federal debt management actions can change the shape of Federal debt service when calculated in
      the Repayment Study.
    • Updates to the interest rate forecast can raise or lower debt service on projected borrowing.
    • Cash in the Bonneville Fund that is attributed to Power affects the calculation of the Interest Credit.
    • The effect of the phase out of the Interest Offset Credit (IOC) and implementation of Market-based
      Investing is not yet known. The IOC will be phased out over 10 years.

                                                                   See Financial Disclosure Statements on Page 2
BPA Integrated Program Review                                                                                      16
Power Non-Federal Debt Service Expense

                                                                                                       Rate Case
 $ in Thousands                                                 Actuals                    SOY          Average         Rate Case           IPR         IPR          IPR
                                                        FY 2006         FY 2007          FY 2008       FY 2007-09         FY 2009         FY 2009      FY 2010      FY 2011
 Program Level Spending                                   508,632         466,404          539,641        548,331           554,014        557,867       556,184      577,064
 Increase/Decrease *                                                      (42,228)          73,238                           14,373           3,853       (1,684)      20,880
   * For FY 2006-2008, Rate Case FY 2009, 2010 and 2011, change is from the prior year. For FY 2009 Forecast, change is calculated from “Rate Case”.

    • Non-Federal debt service consists of 3rd Party arrangements with the following entities: Energy Northwest (EN-
      Nuclear Plants), Lewis County PUD (Cowlitz Falls Hydro Project), Conservation and Renewable Energy System
      (CARES), Northern Wasco (McNary), City of Tacoma, and Emerald PUD.
    • Debt service for EN consists of: principal, interest, investment income, reserve & contingency funds, treasury
      services fees, and other miscellaneous items.
    • Debt service for Lewis County, CARES, Northern Wasco, City of Tacoma, and Emerald is paid directly by BPA
      and consists of principal and interest only.
    • Non-Federal debt service is not level year by year. The primary factor that drives the debt service level in a given
      year is the amount of maturing principal in that year.

                                                                                                  See Financial Disclosure Statements on Page 2

BPA Integrated Program Review                                                                                                                                            17
Power Non-Federal Debt Service
                                   for FY 2010-2011 Rate Period
                                                                 2010           2011
                           Energy Northwest
                                                     CGS         234,040         227,926
                                          WNP-1 DEBT SVC         160,376         162,234
                                          WNP-3 DEBT SVC         142,923         168,221
                                         EN RETIRED DEBT             -               -
                                           EN LIBOR SWAP             -               -
                                                 Sub-Total       537,339         558,381

                           Non-Energy Northwest
                                                 TROJAN              -               -
                                           CONSERVATION            5,079           4,924
                                           COWLITZ FALLS          11,566          11,563
                                               N. WASCO            2,200           2,196
                                                Sub-Total         18,845          18,683
                                   TOTAL                         556,184         577,064

       FY 2010 – 2011 Risks & Opportunities:
       • Debt Optimization is forecasted to continue through 2009 only
       • Potential debt extension associated with CGS license extension
       • Refinancing for savings or potential restructuring opportunities

                                                                See Financial Disclosure Statements on Page 2
BPA Integrated Program Review                                                                                   18
Power Minimum Required Net Revenues

   • As necessary, revenue requirements include a component, minimum required net revenues, to ensure coverage of
     annual cash requirements. It is calculated as the amount by which BPA’s payments to Treasury for amortization
     and irrigation assistance exceed the total of non-cash expenses and revenues.

                                      MINIMUM REQUIRED NET REVENUES CALCULATION
                                                    ($THOUSANDS)

                                                                             2010       2011       Average
                  1 CASH FROM OPERATING ACTIVITIES
                  3    EXPENSES NOT REQUIRING CASH:
                  4        DEPRECIATION AND AMORTIZATION                    204,001     216,916     210,459
                  5        AMORTIZATION OF CAPITALIZED BOND PREMIUMS            185         185         185
                  6        CAPITALIZATION ADJUSTMENT                        (45,937)    (45,937)    (45,937)
                  7        ACCRUAL REVENUES                                  (3,524)     (3,524)     (3,524)
                  8 CASH PROVIDED BY OPERATING ACTIVITIES                   154,725     167,640     161,183

                  9 CASH REQUIREMENTS
                 10    REPAYMENT OF BONDS ISSUED TO U.S. TREASURY           174,749      20,000      97,375
                 11    REPAYMENT OF FEDERAL APPROPRIATIONS                        2     108,802      54,402
                 12    PAYMENT OF IRRIGATION ASSISTANCE                         -           -           -
                 13 TOTAL CASH REQUIREMENTS                                 174,751     128,802     151,777

                 14 MINIMUM REQUIRED NET REVENUES (13 - 8)                   20,026         -         10,013

  • Due to the shape of the cash flows, it may be possible to shift amortization from FY 2010 to FY 2011 to reduce
    or eliminate MRNR in FY 2010. BPA staff will examine this possibility prior to the WP-10 Initial Proposal.

                                                                See Financial Disclosure Statements on Page 2

BPA Integrated Program Review                                                                                        19
Transmission Capital-Related Expenses

BPA Integrated Program Review                         20
Transmission Repayment Study Assumptions
      The repayment study used in this analysis included updates of historical debt management actions as well as
      assumptions about future actions. The more significant of these updates and assumptions are listed below.
        • Historical Federal actions through FY 2007
        •   15 percent lapse factor applied for projected Federal investments
        •   2008 Rate Case amortization for FY 2009
        •   Debt Service Reassignment (DSR) of $110 million for FY 2008
        •   Spring 2008 refinancings of EN debt
        •   Lease financing actions through April 2008 (no projected lease financing in repayment studies)
        •   $15 million per year of revenue/reserve financing

   • Repayment study assumptions have been updated since the IPR Kickoff workshop.
        •   There were corrections to the lease financing payment stream used in the study.
        •   We modified assumptions about when some Federal debt will be paid.

   • There are additional updates that are likely to happen prior to the Initial Proposal.
        •   The database of historical Federal investments will be updated for 2008 transactions.
        •   The non-Federal database will be updated for additional non-Federal refinancing actions occurring in FY
            2008.
        •   The non-Federal database will be updated for additional lease financing transactions.
        •   The interest rate forecast should be updated in the fall.
        •   Staff are also considering other alternative assumptions that may reduce overall debt service.

BPA Integrated Program Review                                                                                         21
Transmission Function Capital Expenditures
                                    Actuals FY 2006-2007, Proposed FY 2009-2012
                                                                                       Rate Case
 $ in Thousands                                        Actuals                SOY       Average          IPR          IPR          IPR          IPR
          Transmission Description                FY 2006       FY 2007      FY 2008   FY 2008-2009     FY 2009      FY 2010      FY 2011      FY 2012

Main Grid                                     $       7,278 $     17,258 $      31,777 $     76,477 $     71,832 $ 155,904 $       221,346 $ 199,945
Area & Customer Service                       $        326 $       1,240 $       6,099 $     16,893 $     19,681 $     31,714 $      6,256 $      6,322
Upgrades & Additions                          $      38,033 $     36,398 $      60,947 $     41,854 $     59,881 $     91,108 $    107,471 $     69,009
System Replacements                           $      47,599 $     63,728 $      62,285 $     63,168 $ 102,717 $ 134,494 $          138,423 $ 109,335
                               1/
Customer Financed/Credits                     $      23,674 $     61,336 $      71,775 $     61,923 $     84,427 $     90,165 $    102,287 $     83,904
Environment                                   $       2,602 $      3,904 $       3,705 $      5,290 $      5,213 $      5,530 $      5,752 $      5,869
Total Direct Capital                          $     119,512 $ 183,864 $        236,588 $    265,605 $ 343,751 $ 508,915 $          581,535 $ 474,384
                         2/
Total Indirect Capital                        $      66,944 $     64,435 $      70,895 $     77,550 $     81,246 $     86,100 $     88,696 $     93,126
    Total Capital Sub-Total                   $     186,456 $ 248,299 $        307,483 $    343,155 $ 424,997 $ 595,015 $ 670,231 $ 567,510
15% Lapse Factor                              $         -   $     -   $            -   $        -   $ (64,021) $ (89,551) $ (101,324) $ (85,736)
                                 Total $            186,456 $ 248,299 $ 307,483.0 $         343,155 $ 360,976 $ 505,464 $          568,907 $ 481,774
Total Increase/Decrease From Prior Year                     $ 61,843 $ 59,184.0                     $ 53,493 $ 144,488 $            63,443 $ (87,133)

  1/    Includes Radio Spectrum and PFIA projects
  2/   Includes AFUDC

                                                                                  See Financial Disclosure Statements on Page 2

BPA Integrated Program Review                                                                                                                     22
Transmission Net Interest, Amortization,
                                           Depreciation & Non-Federal Debt Service
  UPDATED                                                                                   Rate Case
       $ in Thousands                                    Actuals                SOY          Average          Rate Case            IPR           IPR    IPR
                                                  FY 2006       FY 2007       FY 2008       FY 2008-09           FY 2009        FY 2009 FY 2010        FY 2011
       Program Level Spending                     307,457       311,510       315,702           364,567           375,020       329,817 357,323        384,892
       Increase/Decrease *                                        4,053         4,192                               59,319       (45,203) 27,505        27,569

  * For FY 2006-2008, Rate Case FY 2009, 2010 and 2011, change is from the prior year. For FY 2009 Forecast, change is calculated from “Rate Case”.

     Program Background:
     • Program components
        • Net interest – Comprised of Debt Service Reassignment interest and interest on Federal bonds and
            appropriations netted against interest credit from the Bonneville Fund.
            •     Depreciation – The depreciation of revenue-producing assets and on-going infrastructure investments.
            •     Amortization – The depreciation of regulatory assets such as spacer dampers and non-wires solutions.
            •     Non-Federal Debt Service – Comprised of interest that accrues on customer balances for network upgrades
                  associated with LGIA contracts.
     Drivers of Change:
     • Increased capital investment results in higher costs in FYs 2010-2011.
     • Change in projected interest income due to change in cash balances.
     • Debt management actions.

                                                                                                 See Financial Disclosure Statements on Page 2

BPA Integrated Program Review                                                                                                                                    23
Where do these categories appear in the
                               Transmission Revenue Requirement?
                                                   Bold Typeface = Affected Category

                Transmission Revenue Requirement                                        Transmission Revenue Requirement
                        Income Statement                                                     Statement of Cash Flows

     1 OPERATING EXPENSES                                              1 CASH FROM CURRENT OPERATIONS:
     2     OPERATION AND MAINTENANCE                                   2    MINIMUM REQUIRED NET REVENUES 1/
     3     TRANSMISSION ACQ & ANCILLARY SERVICES                       3    EXPENSES NOT REQUIRING CASH:
     4     NON-FEDERAL PROJECTS DEBT SERVICE                           4        DEPRECIATION & AMORTIZATION
     5     DEPRECIATION & AMORTIZATION                                 5        NON-FEDERAL PROJECTS DEBT SERVICE
     6 TOTAL OPERATING EXPENSES                                        6        AMORTIZATION OF CAPITALIZED BOND PREMIUMS
                                                                       7        CAPITALIZATION ADJUSTMENT
     7 INTEREST EXPENSE                                                8    ACCRUAL REVENUES (LGIA revenue credits)
     8     DEBT SERVICE REASSIGNMENT INTEREST                          9    ACCRUAL REVENUES (AC INTERTIE/FIBER)
     9     INTEREST ON FEDERAL INVESTMENT -                           10 CASH PROVIDED BY CURRENT OPERATIONS
    10          ON APPROPRIATED FUNDS
    11          ON LONG-TERM DEBT
    12          INTEREST INCOME                                       11 CASH USED FOR CAPITAL INVESTMENTS:
    13          AMORTIZATION OF CAPITALIZED BOND PREMIUMS             12    INVESTMENT IN:
    14     CAPITALIZATION ADJUSTMENT                                  13       UTILITY PLANT
    15     AFUDC                                                      14 CASH USED FOR CAPITAL INVESTMENTS
    16 NET INTEREST EXPENSE
                                                                      15 CASH FROM TREASURY BORROWING AND APPROPRIATIONS:
    17 TOTAL EXPENSES                                                 16    INCREASE IN LONG-TERM DEBT
                                                                      17    DEBT SERVICE REASSIGNMENT PRINCIPAL
    18 MINIMUM REQUIRED NET REVENUES 1/                               18    REPAYMENT OF LONG-TERM DEBT
    19 PLANNED NET REVENUES FOR RISK                                  19    REPAYMENT OF CAPITAL APPROPRIATIONS
    20 TOTAL PLANNED NET REVENUES                                     20 CASH FROM TREASURY BORROWING AND APPROPRIATIONS

    21 TOTAL REVENUE REQUIREMENT                                      21 ANNUAL INCREASE (DECREASE) IN CASH

                                                                      22 PLANNED NET REVENUES FOR RISK
    1/ SEE NOTE ON CASH FLOW TABLE.
                                                                      23 TOTAL ANNUAL INCREASE (DECREASE) IN CASH

                                                                    1/ Line 21 must be greater than or equal to zero, otherwise net revenues
                                                                       will be added so that there are no negative cash flows for the year.

BPA Integrated Program Review                                                                                                                  24
Transmission Depreciation & Amortization Expense

                                                                                                    Rate Case           Rate
 $ in Thousands                                            Actuals                    SOY            Average            Case           IPR            IPR    IPR
                                                   FY 2006         FY 2007          FY 2008         FY 2008-09        FY 2009        FY 2009 FY 2010        FY 2011
 Program Level Spending                             171,359         175,584          184,472           194,382        198,535        190,648 200,810        211,538
 Increase/Decrease *                                                  4,225             8,888                          14,063          (7,887) 10,162        10,728

  * For FY 2006-2008, Rate Case FY 2009, 2010 and 2011, change is from the prior year. For FY 2009 Forecast, change is calculated from “Rate Case”.

     •      Depreciation is for revenue-producing assets such as lines, towers, and substations. Depreciation is calculated
            using the straight-line method. The depreciation period for different assets varies by FERC account and depends
            on factors for salvage value and removal costs.
     •      Amortization is for regulatory assets such as spacer-dampers and non-wires solutions. Amortization is calculated
            using the straight-line method over 30 and 20 years respectively.

     FY 2010 – 2011 Risks & Opportunities:
     •      This forecast applies the 15 percent lapse factor to all categories. The forecast will vary if the lapse factor
            were to be applied differently.

                                                                                                 See Financial Disclosure Statements on Page 2

BPA Integrated Program Review                                                                                                                                         25
Transmission Net Interest Expense

   UPDATED                                                                                   Rate Case            Rate
   $ in Thousands                                     Actuals                   SOY           Average             Case            IPR                IPR    IPR
                                               FY 2006          FY 2007    FY 2008            FY 2008-09        FY 2009        FY 2009          FY 2010    FY 2011
   Program Level Spending                        136,761         133,806 127,850                  130,828       164,941         132,283          150,623    168,664
   Increase/Decrease *                                             (2,955)   (5,956)                             37,091          (32,658)         18,340     18,041

 * For FY 2006-2008, Rate Case FY 2009, 2010 and 2011, change is from the prior year. For FY 2009 Forecast, change is calculated from “Rate Case”.

     The major components of Net Interest Expense are:
     •       Debt Service Reassignment interest. This represents the interest component of Energy Northwest refinanced
             debt that has been assigned to Transmission for repayment as part of the Debt Optimization program.
     •       Interest on outstanding bonds and appropriations. For Transmission, bonds issued to the U.S. Treasury by
             BPA are for capital equipment and the construction of transmission facilities. Congressional appropriations are
             for the construction of transmission facilities.
     •       Interest credit. A significant variable is an interest credit associated with interest income from cash in the
             BPA Fund attributable to Transmission cash flows.
     •       Amortization of certain cash events. These include the non-cash expenses for amortization of capitalized
             bond premiums and the capitalization adjustment resulting from the BPA Appropriations Refinancing Act.
     •       Allowance For Funds Used During Construction (AFUDC). This is included to offset bond interest used to
             fund assets under construction.

                                                                                                  See Financial Disclosure Statements on Page 2

BPA Integrated Program Review                                                                                                                                         26
Transmission Net Interest Expense
                                      for FY 2010-2011 Rate Period
                                             ($Thousands)                 2010            2011
                              Debt Service Reassignment Interest            55,458         55,429
                              Interest on Federal Investment
                                   On Appropriated Funds                    23,198         22,051
                                   On Long-Term Debt                       119,877        139,774
                                   Interest Credit                         (19,000)       (19,000)
                                   Amort of Cap Bond Prem                      758            692
                              Capitalization Adjustment                    (18,968)       (18,968)
                              AFUDC                                        (10,700)       (11,314)
                              Net Interest Expense                         150,623        168,664

    FY 2010 – 2011 Risks & Opportunities:
    • Non-Federal debt management actions can change the shape of Federal debt service when calculated in
      the Repayment Study.
    • Updates to the interest rate forecast can raise or lower debt service on projected borrowing.
    • Cash in the Bonneville Fund that is attributed to Transmission affects the calculation of the Interest
      Credit.
    • The effect of the transition from the Interest Offset Credit (IOC) to Market-based Investing is not yet
      known. The IOC will be phased out over 10 years.

                                                                   See Financial Disclosure Statements on Page 2

BPA Integrated Program Review                                                                                      27
Transmission Non-Federal Debt Service Expense

                                                                                               Rate Case
    $ in Thousands                                     Actuals                    SOY           Average          Rate Case              IPR            IPR          IPR
                                               FY 2006          FY 2007          FY 2008        FY 2008-09         FY 2009           FY 2009          FY 2010      FY 2011
    Program Level Spending                          (663)           2,121            3,380           8,804            11,544             6,886            5,890        4,690
    Increase/Decrease *                                             2,783            1,259                             8,164            (4,658)            (996)      (1,200)

  * For FY 2006-2008, Rate Case FY 2009, 2010 and 2011, change is from the prior year. For FY 2009 Forecast, change is calculated from “Rate Case”.

   • Non-Federal Debt Service for Transmission consists of interest that accrues on customer balances for
     prepayments made for network upgrades related to Large Generator Interconnection Agreements (LGIA).
   • Non-Federal debt service is directly associated with the forecast of LGIA customer balances. As customer
     balances increase, debt service tends to increase. As balances decline, debt service tends to decline.
   • The IPR forecast does not include a forecast of additional LGIA projects. If an updated forecast includes new
     projects, non-Federal debt service expense will likely increase.

                                                                                                 See Financial Disclosure Statements on Page 2

BPA Integrated Program Review                                                                                                                                             28
Transmission Minimum Required Net Revenues

   • As necessary, revenue requirements include a component, minimum required net revenues, to ensure coverage of
     annual cash requirements. It is calculated as the amount by which BPA’s payments to Treasury for amortization
     and irrigation assistance exceed the total of non-cash expenses and revenues.
                                      MINIMUM REQUIRED NET REVENUES CALCULATION
                                                     ($Thousands)

                                                                               2010       2011      Average
                      1 CASH FROM CURRENT OPERATIONS:
                      2    EXPENSES NOT REQUIRING CASH:
                      3        FEDERAL PROJECTS DEPRECIATION                  200,810    211,538    206,174
                      4        AMORTIZATION OF CAPITALIZED BOND PREMIUMS          758        692        725
                      5        CAPITALIZATION ADJUSTMENT                      (18,968)   (18,968)   (18,968)
                      6        NON-FEDERAL DEBT SERVICE                         5,890      4,690      5,290
                      7    ACCRUAL REVENUES (LGIA)                            (11,276)   (11,276)   (11,276)
                      8    ACCRUAL REVENUES (AC INTERTIE/FIBER)                (7,937)    (7,897)    (7,917)
                      9 CASH PROVIDED BY CURRENT OPERATIONS                   169,277    178,779    174,028

                     10 CASH REQUIREMENTS
                     11    DEBT SERVICE REASSIGNMENT PRINCIPAL                     12        154         83
                     12    REPAYMENT OF LONG-TERM DEBT                        190,251    115,000    152,626
                     13    REPAYMENT OF CAPITAL APPROPRIATIONS                 15,873     94,872     55,372
                     14 TOTAL CASH REQUIREMENTS                               206,136    210,026    208,081

                     15 MINUMUM REQUIRED NET REVENUES (14 - 9)                 36,858     31,247     34,053

   • This calculation does not include a forecast of new LGIA projects and associated revenue credits. These values
     represent actual credits distributed today.
   • This calculation assumes the use of $15 million/year of reserves as a source of capital. If revenue financing were
     used instead of reserves, MRNR would increase by a corresponding amount.
                                                                 See Financial Disclosure Statements on Page 2

BPA Integrated Program Review                                                                                         29
Large Generator Interconnection Agreement
                                                 Transmission Credits

                                                                                                  Rate
                                                                                                  Case            Rate
       $ in Thousands                                       Actuals                   SOY        Average          Case            IPR            IPR    IPR
                                                     FY 2006        FY 2007        FY 2008 FY 2008-09 FY 2009                   FY 2009 FY 2010        FY 2011
       Program Level Spending                           1,656          5,515        13,445    31,565   35,348                     11,276  11,276        11,276
       Increase/Decrease *                                             3,858         7,930             21,903                    (24,072)      0             0
  * For FY 2006-2008, Rate Case FY 2009, 2010 and 2011, change is from the prior year. For FY 2009 Forecast, change is calculated from “Rate Case”.

      • The revenue forecast will include a non-cash revenue that matches transmission credits.
      • The revenue requirement will include two expense categories:
                •     Interest accrued on the account balances (“non-Federal projects debt service”)
                •     Depreciation on the assets once they are placed into service.
      • Originally, Transmission projected a higher non-cash effect to be higher because several projects were
        expected to be energized (COI and Klondike Phase III) were not.
      • We have limited the non-cash effect at this time to the projected annual credits for existing network
        upgrade projects.
      • The IPR forecast does not include a forecast of additional network upgrade projects.

                                                                                                 See Financial Disclosure Statements on Page 2

BPA Integrated Program Review                                                                                                                                    30
Large Generator Interconnection Agreement
                                   Transmission Credits
   •   How is the credit balance calculated? It is the sum of:
         •   The total funds advanced by the customer to TBL for construction of the network upgrades.
         •   Interest earned on the total advance which accrues at the FERC rate beginning on the date
             the funds are received.
   •   How are the credits applied?
         •   Currently Transmission business practice outlines two different methods of repayment of
             transmission credits.
               • Method one : When transmission services commence, Transmission Credits will be
                 applied to charges in the Interconnection Customer’s, or its assignee, monthly
                 transmission bill for Network Integration (NT) or Point-to-Point (PTP) transmission
                 service on a dollar-for-dollar basis at the applicable transmission rates that are in effect
                 when transmission service is taken.
               • Method two: Upon the Commercial Operation Date of the generator, Transmission
                 Credits will be repaid to the Interconnection Customer, or its assignee, based on the
                 estimated output of the facility multiplied by the PTP Long-Term rate.
         •   If the customer’s credit balance is not fully depleted within twenty years, Transmission
             Services (TS) will refund the balance in a single payment.
         •   The interconnection customer may assign the credits to another TS customer with NT or PTP
             contracts so long as the generator is identified as either the POR or as a network resource in
             the assignee’s contracts.

BPA Integrated Program Review                                                                                   31
Transmission Capital Lease Financing Expense
                               Transmission Leased Facilities Expense (includes all leases)

   • The Leased Facilities Expense line item is part of Transmission’s Operating Expenses.
   • This line item includes both capital and operating leases as well as and potential property tax liabilities.
   • The lease expenses due to BPA’s capital leases in the lease financing program are:
        • FY 2009: $10,305,750
        • FY 2010: $10,820,752
        • FY 2011: $11,363,159

   • The capital lease forecast for FY 2009-2011 only includes signed leases.
   • The capital lease forecast will increase for Initial Proposal because we entered into additional leases after the
     forecast was prepared.

                                                                    See Financial Disclosure Statements on Page 2

BPA Integrated Program Review                                                                                            32
Debt Management Actions

BPA Integrated Program Review                         33
Debt Management Actions – Debt Optimization
  1. What is Debt Optimization?
      • Energy Northwest replaces old bonds that are currently coming due with new bonds that will become due in the
        2013 –2018 period.
      • As part of this program BPA agreed with EN that BPA would use cash in the Bonneville Fund that would have
        been used to pay the old EN bonds to pay off Treasury debt early in order to preserve/restore borrowing
        authority. This additional BPA amortization is a necessary condition of the refinancings.
      • The end result is BPA’s available Treasury borrowing authority increases. Also, because municipal tax-exempt
        debt is typically less expensive than BPA’s taxable Treasury debt, overall interest costs go down.
  2. Debt Optimization is working as intended by EN and BPA. The goals are to:
      • Restore Treasury borrowing authority.
      • Prevent any overall negative impact on rates.
      • Minimize the cost of BPA’s overall debt portfolio.

                        Advanced Payments Due to Debt Optimization                                          Projected
                                            ($ in millions)                                                 Payments
                   FY01      FY02      FY03        FY04       FY05    FY06       FY07       Total         FY08     FY09
    Generation       $98      $266        $0         $141     $123     $133        $87      $847           $101     $166
    Transmission      $0          $0    $315         $205     $190     $204       $202     $1,117          $110         $50
    Total            $98      $266     $315          $346     $313     $337       $289     $1,964          $211     $216

                                                                 See Financial Disclosure Statements on Page 2

BPA Integrated Program Review                                                                                             34
Debt Management Actions: EN Bond Transactions

     •   2008ABC- March 25 Pricing
          •   Debt Optimization – $147 million
          •   Fix-out of under-performing variable rate debt – $226 million
          •   CGS new money – $50 million
          •   Implemented FY07-09 Power Services rate case promise to move debt to reduce spike in
              2017, keeping rates down

     •   2008DE- May 14 Pricing
          •   Traditional Refunding for Savings – $272 million (about $2 million in estimated annual
              savings in the rate case years of 2010-11)
          •   This bond deal has not been included in the repayment studies and affects only Power

     •   2008F- June 16 Pricing
          • Replacement of under-performing variable rate debt with new variable rate debt – $209
             million
          • This bond deal has not been included in the repayment studies and affects only Power

BPA Integrated Program Review                                                                          35
Access to Capital Update

BPA Integrated Program Review                              36
Treasury Borrowing Authority from the March 4, 2008
                                            Access to Capital Presentation

3,000                                                                                                3,000
                                                ($ in Millions)

2,000                                                                                                2,000

1,000                                                                                                1,000

     0                                                                                                    0
          2007   2009   2011       2013     2015         2017     2019   2021   2023   2025   2027             2007   2009   2011   2013   2015    2017       2019   2021   2023   2025    2027

(1,000)                                                                                              (1,000)
                  A: Base Case

(2,000)                                                                                              (2,000)                                 B: Base Case +
                               B: Base Case +                                                                                                   ML (2018)
                                  ML (2018)
(3,000)                                                                                              (3,000)
                                                                                                                                                          E: Base Case +
                                                                                                                                                             ML (2027)
(4,000)                                                                                              (4,000)

(5,000)                                                                                              (5,000)

          •      In the Access to Capital presentation from March 4, 2008, we shared the above charts projecting the crossover
                 point for borrowing authority to be roughly 2015 for the base case and 2018 with the lease financing scenarios.
          •      Since then, we have updated our assumptions used in the borrowing authority analysis.

                                                                                                         See Financial Disclosure Statements on Page 2

BPA Integrated Program Review                                                                                                                                                             37
Updated Borrowing Authority Chart

                                                           Agency Remaining Borrowing Authority
                                                           IPR Capital Submittal With and Without Lease Financing through 2027

           3000

           2000                                                                                                Base Case Plus extended
                                                                                                               Lease Financing Program
                                                                                                                    through 2027
           1000
                   ($Millions$)

              0
                                  2007   2009    2011      2013            2015             2017            2019            2021         2023   2025   2027

           -1000

           -2000
                                                        Base Case

           -3000

           -4000

           -5000

           -6000

   • Changes since the March 4th Access to Capital presentation include updated IPR capital expenditures, updated
     repayment run amortization, and updated Lease Financing forecast.
   • Capital spending forecasts increased significantly, while amortization changed little, which results in Treasury
     borrowing authority being depleted about two years earlier in the both the Base Case and the Lease Financing
     Scenario when compared to the March 2008 Access to Capital presentation.
                                                                                                     See Financial Disclosure Statements on Page 2

BPA Integrated Program Review                                                                                                                                 38
Treasury Borrowing Authority Modeling Scenarios

    March 2008 Access to Capital Presentation                                            June 2008 IPR Presentation

                      BASE CASE ASSUMPTIONS                                                   BASE CASE ASSUMPTIONS
    •   Capital forecast: 2008-13 consistent with 2009 President’s          •   Capital forecast: New capital forecast for 2009-2014; 2015-27
        Budget; 2014-27 forecast is a shaped and escalated forecast.            forecast is a shaped and escalated forecast. Total capital
        Total capital projections for 2008-2027 is $11.2 billion.               projections for 2008-2027 is $12.6 billion
    •   Under-run factor applied to Federal capital forecast                •   Lapse factor applied to Federal capital forecast for 2009-2014,
    •   Debt Optimization: 2008 = $211 million; 2009 = $216 million.            no under-run applied for the outyears
        Amounts are consistent with information shared at the 2008          •   Debt Optimization: 2008 = $211 million; 2009 = $78 million.
        annual DO meeting, and include advance + current refinancings.          2008 amount is consistent with the 2008 DO transaction and
    •   Revenue finance: Transmission = $15 million in 2008 and 2009;           includes current and advance refinancings; 2009 includes only
        Power = $0                                                              advance refinancings for Power.
    •   CRFM projections: Power only, $577 million in total through         •   Revenue finance: Transmission = $15 million 2009-2011; Power
        2015                                                                    = $0
    •   CGS new capital: Power only, $677 million in total through          •   CRFM projections: Power only, $721 million in total through
        2019; level debt service 2020-24                                        2015
    •   CGS replacements: Power only, $4.7 billion plant, debt service      •   CGS new capital: Power only, $731 million in total through
        starting in 2025                                                        2024; 2009-2012 level debt service through 2020-24, 2013-2024
                                                                                level debt service for 20 years
    •   Interest rates forecast: Official BPA forecast from 10/25/07
                                                                            •   CGS replacements: Power only, $4.7 billion plant, debt service
                                                                                starting in 2025
                                                                            •   Interest rates forecast: Official BPA forecast from 10/25/07
                    BASE CASE + Lease Financing
    •   Same as above, except add Lease Financing projections                              BASE CASE + Lease Financing
        through 2018 totaling $1.4 billion and 2027 totaling $2.3 billion
                                                                            •   Same as above, except add Lease Financing projections
                                                                                through 2018 totaling $1.8 billion and through 2027 totaling $3.2
                                                                                billion

BPA Integrated Program Review                                                                                                                       39
Lease Financing Overview

BPA Integrated Program Review                          40
Finding Access to Capital to Meet BPA’s
                               Infrastructure Demands

    • BPA’s capital appetite across all areas of investment will eventually exceed BPA’s ability to
      borrow from the Treasury.

    • BPA has limited access to borrowing from the U.S. Treasury.

    • BPA received a modest increase in Treasury borrowing authority in 2002 (Congressional
      enactment). The likelihood of receiving more borrowing authority is low given the Federal
      budget deficits.

    • BPA was encouraged to use third-party financing arrangements to acquire capital.

    • Simultaneously, BPA was encouraged to make infrastructure investments in light of the 2000-
      2001 energy crisis.

    • BPA has worked closely with the a focus group of the Customer Collaborative regarding its lease
      financing program.

BPA Integrated Program Review                                                                           41
Lease Financing Model

    • BPA enters into a series of individual lease commitments with one or more bankruptcy remote
      special purpose entities.

    • BPA’s lease payment commitments are to be made regardless of whether the related facility is
      completed, operable or operating.

    • The third party irrevocably pledges BPA lease payments to the payment of bank loans or other
      debt.

    • The related project assets are not pledged as collateral.

    • The third party initially holds title to the assets, but BPA obtains full benefit and use of the
      assets.

    • BPA pays all costs to operate and maintain the assets.

    • At the end of the lease, BPA has the option to acquire title to the assets for a nominal charge.

BPA Integrated Program Review                                                                            42
Lease Financing Structure

                              Lease                                          Contract to
        BPA as User        Commitments                                       Construct      BPA as Builder

                                                  Third Party
             BPA                                                                                 BPA
                                                 (Title Holder)

                           Lease Payments                                    Construction
                                 ($)                                           Draws
                                                                                 ($)

                                 Debt Service                      Capital
                                 Payments ($)
                                                                     ($)

                                                Bank Facility or
                                                 Bond Holders

BPA Integrated Program Review                                                                                43
Project Criteria

   •   Capital work order estimate greater than $500 thousand loaded (~$365 thousand direct)
        •   Temporary threshold
   •   Project contains at least one tagged and tracked asset

   •   Low likelihood of moving the asset

   •   Assets with long design lives

   •   Inventory usage expected to be less than 25 percent of the material costs and less than 10 percent
       of the total project costs

   •   Excludes retirement activities, land acquisitions, and access roads

BPA Integrated Program Review                                                                               44
Lease Financing Program Status

       •   In FY 2007, BPA used the lease finance program to finance 10 projects that will preserve
           roughly $45 million in Treasury borrowing.

       •   In FY 2008, BPA used the lease financing program to finance 17 projects that will
           preserve roughly $60 million in Treasury borrowing.

       •   The average weighted all-in borrowing rate for transactions we have entered into for the
           27 projects is about 70 basis points above the agency borrowing rate.

       •   Due to the recent turmoil in the credit markets, it is likely that the rate differential will
           become larger, at least in the near term.

BPA Integrated Program Review                                                                              45
Federal Columbia River Power System (FCRPS)
                         Total Liabilities to Federal and Non Federal Parties as of 9-30-07 1/
 Energy Northwest                                                                     ($ in millions)
                                                                                                                                                           BPA Appropriations
 $5,314
 Wtd. Avg. Int. 5.1%          Generation                                                                                           Transmission            $564
                                                                                                                                                           Wtd. Avg. Int. 7.2%

                                                                              Corps of Engineers
                                                                              Appropriations $2,528
                                                                              Wtd. Avg. Int. 6.3%                                                               Other Non-Federal
                                                                                                                                                                Projects $171
                                                                                                                                                                Wtd Avg. Int.
                                                                                                                                                                5.5%

                                                                   Lower Snake Fish and Wildlife $231
                                                                   Wtd. Avg. Int. 7.1%
         Other Non-Federal                           Bureau of Reclamation                              Bonds Issued to
         Projects $205         Bonds Issued to                                                          Treasury $1,464                            Energy Northwest 3/ $861
                               Treasury $777         Appropriations $627                                                                           Wtd. Avg. Int. 5.4%
         Wtd Avg. Int. 4.9%                          Wtd. Avg. Int. 6.9%                                Wtd. Avg. Int
                               Wtd. Avg. Int. 5.2%                                                      5.6%
                                                                    Power Marketing                               Transmission                       Total
                                                                  Liabilities     WAI                         Liabilities      WAI          Liabilities             WAI
                                                                 Outstanding      Rate                       Outstanding       Rate        Outstanding              Rate
                                                                  ($millions)       %                         ($millions)       %           ($millions)              %
   Total Appropriations 2/                                                   $3,386              6.5                        $564     7.2            $3,950              6.6
   Total Bonds Issued to Treasury                                               777              5.2                       1,464     5.6             2,241              5.5
   Total Federal Liabilities                                                  4,163              6.3                       2,028     6.0             6,191              6.2
   BPA Liabilities to Non Federal Parties 3/                                  5,519              5.1                       1,032     5.4             6,551              5.2
      Total FCRPS Liabilities                                                $9,682              5.6                      $3,060     5.8          $12,742               5.7

   1/ Does not include irrigation assistance liability of $735 million at zero percent interest ($53.9 of this amount is for Lower Teton, for which the
      Administrator has no obligation to recover costs). “Liabilities” on this page do not directly relate to “liabilities” as reflected in the Combined Statements
      of Capitalization and Long-Term Liabilities.
   2/ Appropriation amounts exclude appropriations for construction work still in progress (CWIP). 2007 CWIP for appropriations was $304 million.
   3/ Transmission principal is different from the Transmission Services (TS) Federal repayment obligation due to: 1) premium bonds issued, 2) timing difference
       3) transactions costs. TS is assigned the repayment obligation for these items, which equals the additional Federal prepayment made on TS's behalf.
                                This information made publicly available by BPA in November 2007 and is consistent with BPA’s FY 2007 Annual Report. Any
                                variation is due to rounding .

BPA Integrated Program Review                                                                                                                                            46
Workshop Schedule
         Workshop #                                                                                     Dates              Time
           1   Executive Welcome and overviews                                                       Th. 5/15/2008       9am-3pm
                     Executive welcome, introduction and process overview
                     Power overview
                     Transmission overview
           2   FY 2009 Power Costs                                                                   Th. 5/15/2008       3pm-4pm
                     Overview, schedule
                     Miscellaneous small program changes

           3   Asset Management Overview                                                            Tues. 5/20/2008     9am-9:30 am
               Agency services Costs                                                                                    9:30am-12pm
           4   Power’s Internal Operating Costs                                                     Tues. 5/20/2008      1pm-4pm
               Power’s Transmission Acquisition
               Residential Exchange
           5   Fish and Wildlife Capital/Expense MOA costs overall, and changes to FY 2009 F&W     Wedn. 5/21/2008       9am-12pm
               Program costs, and Columbia River Fish Mitigation Investment.

           6   Corps/Reclamation - Capital/Expense Part 1 of 2                                     Wedn. 5/21/2008       1pm-4pm
           7   Conservation and Energy Efficiency - Capital/Expense                                  Th. 5/22/2008       9am-12 pm
               Renewable Resources Program
           8   Columbia Generating Station                                                           Th. 5/22/2008       1pm-4pm

           9   General Manager Meeting on 2009 costs                                               Wedn. 6/11/2008       1pm-4pm
                                      (Steve Wright attending 2pm to 4pm)

          10   Fish and Wildlife Capital/Expense with emphasis on FY 2010-2011 F&W program           Th. 6/12/2008       9am-12pm
               costs, hydro ops, Lower Snake River comp. Program, Columbia River Fish Mitigation
               Investment and NWPCC

          12   Depreciation, Amortization and Interest, and Debt Management                        Th. 6/26/2008        9am-12pm

          13   Transmission
                    Transmission Expenses
                    Transmission Capital                                                           Th. 6/26/2008        1pm - 5pm

          15   Close-out meeting on FY 2009 Power Costs                                            Wedn. 7/2/2008     8:30am-9:30am

          14   General Manager meeting on 2010-2011 costs                                          Wedn. 7/2/2008     9:30am-11:30am
                                 (Steve Wright in attendance)

BPA Integrated Program Review                                                                                                          47
Integrated Program Review Process

      Ways to Participate
      •   All forums are open to the public and will be noticed on the IBR external Web site at:
          http://www.bpa.gov/corporate/Finance/IBR/IPR/

      •   All Technical and Managerial workshops will be held at BPA Headquarters.
      •   The comment period for FY 2009 Power Costs opens Thursday, May 15, 2008 and closes Thursday,
          June 19, 2008.
      •   The comment period for FY 2010 and beyond opens Thursday, May 15, 2008 and closes Friday,
          August 15, 2008.
      •   You have several options to provide comments to BPA:
           1. Attend one or more of the meetings listed above and give BPA your comments.
           2. Discuss your input with your Customer Account Executive, Constituent Account Executive, or
              Tribal Liaison.
           3. Submit written comments to Bonneville Power Administration, P.O. Box 14428, Portland OR
              97293-4428.
           4. Submit comments via e-mail             to:   comment@bpa.gov       or   submitted    on-line   at:
              http://www.bpa.gov/comment
           5. Comments can also be sent via fax to (503) 230-4470.

BPA Integrated Program Review                                                                                      48
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